Sunday, December 10, 2006

Weak dollar affects Oil Holdings

Since dollar continues to be in declining position, oil producing countries have reduced their business with the U.S currency market and shifted their way to the Euros, sterling’s and Yen’s which are making a big way in the currency markets.

The BIS report stated that the speculation in the U.S currency market will add more pressure to the already pressurized U.S currency market. In December the U.S dollar downfall is more. Owing to this fact, some countries started their oil holdings with other currencies rather than the U.S dollar. As a result the holdings of U.S dollar which were 67% came down gradually to 65%.

On the other hand, the other currencies like Euro have increased their oil holdings rapidly from 20% to 22%. Overall, Opec’s Dollar deposits fell by $5.3bn, while Euro and Yen deposits rose $2.8bn and $3.8bn, respectively.

In order to make the U.S dollar strong, the Fed must re-think on the interest rate policy and the global imbalances.

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